Interviewing Jesse Livermore

Tuesday, October 12th, 2010 Just For Fun, Your Mental Game by admin

Not very often do you get to discuss with those from the past, questions about today.  However, through the amazing use of the internet, Euodoo has been able to interview Jesse Livermore.  The interview you are about to listen to is based 100% on quotes from Mr. Livermore.  All of the answers that he gives are “word for word” comments that are attributed to him.  I hope you enjoy this interview.

The Traders That Came Before Us – Jesse Livermore Quotes

Wednesday, August 25th, 2010 Your Mental Game by admin

I found these quotes on a site called Leavittbrothers.com which also has a good section on chart and candle pattern definitions.

I think it is a must read for traders. Mostly Jesse Livermore Quotes with a few tidbits added in from Leavitbrothers.

Jesse Livermore quotes…many nuggets of wisdom. Print this and read it over and over (bold

emphasis is ours).

It is what people actually did in the stock market that counted not what they said they were

going to do.

Livermore studied his mistakes objectively the only way you get a real education in the market

is to invest cash, track your trade, and study your mistakes.  It is emotionally difficult to review

your mistakes, since the speculator must wade through his own bad trades and blunders.  And these

are not simple blunders; these are blunders that cost money.  Anyone who has lost money by

investing poorly knows how difficult it is to reexamine what occurred.  The examination of a losing

trade is tortuous but necessary to ensure that it will not happen again.

Livermore was brutal in self-analysis.  He told his sons his conclusions: Successful trading is always

an emotional battle for the speculator, not an intelligent battle.  He knew that his biggest enemy

was his own emotions.

We are the sum total of our experience. When asked what makes a good stock speculator,

Livermore replied its an aptitude for the game, a stomach for the ride, and the ability to see what

is happening without emotion. The ability to make observations that others don’t and a good

memory.  Only speculate if you can make it a full-time job.  Don’t take tips of any kind, no matter

where they come from.  Don’t worry about catching tops or bottoms, that’s fools play.  Keep the

number of stocks you own to a controllable number.  Its hard to herd cats, and its hard to track

a lot of securities. Take your losses quickly and don’t brood about them. Try to learn from them

but mistakes are as inevitable as death.  And only make a big move, a real big plunge, when a

majority of factors are in your favor.  Every once in a while you must go to cash, take a break,

take a vacation.  Don’t try to play the market all the time.  It can’t be done, too tough on the

emotions.

The unsuccessful investor is best friends with hope, and hope skips along lifes path, hand in hand

with greed when it comes to the stock market. Once a stock trade is entered, hope springs to life.  It

is human nature to be positive, to hope for the best.  Hope is an important survival technique. But

hope, like its stock market cousins ignorance, greed, and fear, distorts reason. See the stock

market only deals in facts, in reality, in reason, and the stock market is never wrong.  Traders are

wrong.  Like the spinning of a roulette wheel, the little black ball tells the final outcome, not greed,

fear or hope. The result is objective and final, with no appeal.

I believe that the public wants to be led, to be instructed, to be told what to do. They want

reassurance. They will always move en masse, a mob, a herd, a group, because people want the

safety of human company. They are afraid to stand alone because they want to be safely included

within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of

contrary opinion.

First, do not be invested in the market all the time. There are many times when I have been

completely in cash, especially when I was unsure of the direction of the market and waiting

for a confirmation of the next move….Second, it is the change in the major trend that hurts most

speculators.

The last gasp of heavy volume provides a great opportunity to sell out any illiquid large holdings. I

knew it was foolish to ever catch the tops or the bottoms of the moves. It is always better to sell

large holdings into an advancing market when there is plenty of volume. The same is true on the

short side; you are best to cover the short position after a steep, fast decline.

the market will often go contrary to what speculators have predicted. At these times, successful

speculators must abandon their predictions and follow the action of the market. Prudent

speculators never argue with the tape. Markets are never wrong, but opinions often are.

All through time, people have basically acted the same way in the market as a result of greed, fear,

ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.

Every stock is like a human being: it has a personality, a distinctive personality. Aggressive,

reserved, hyper, high-strung, volatile, boring, direct, logical, predictable, unpredictable. I often

studied stocks like I would study people; after a while their reactions to certain circumstances

become more predictable.

I believe that having the discipline to follow your rules is essential. Without specific, clear, and

tested rules, speculators do not have any real chance of success. Why? Because speculators

without a plan are like a general without a strategy, and therefore without an actionable battle plan.

Speculators without a single clear plan can only act and react, act and react, to the slings and

arrows of stock market misfortune, until they are defeated.

If you can’t sleep at night because of your stock market position, then you have gone too far. If this

is the case, then sell your position down to the sleeping level.

I believe that anyone who is intelligent, conscientious, and willing to put in the necessary

time can be successful on Wall Street. As long as they realize the market is a business like

any other business, they have a good chance to prosper.

Remember, it [the market] is designed to fool most of the people most of the time.

I have always fully understood that I am not the only one who knows that the stock market is the

worlds biggest gold mine, sitting at the foot of the island of Manhattan. A gold mine that opens its

doors every day and invites anyone and everyone in to plump its depths and leave with

wheelbarrows full of gold bars, if they can and I have done it. The gold mine is there all right, and

every day somebody plumps its depths, and when the bell rings at the end of the day they have

gone from pauper to prince, or gone from prince to supreme potentate, or gone stony broke. And its

always there waiting.

I believe that uncontrolled basic emotions are the true and deadly enemy of the speculator;

that hope, fear, and greed are always present, sitting on the edge of the psyche, waiting on

the sidelines, waiting to jump into the action, plow into the game.

These words [bullish, bearish] are not in my vocabulary because I believe they can create an

emotional mind-set of a specific market direction in a speculators mind.

I never try to predict or anticipate. I only try to react to what the market is telling me by its

behavior.

I believe there are no good stocks or bad stocks; there are only money making stocks. So

there is no good direction to trade, short or long; there is only the money-making way to

trade.

Greed, fear, impatience, and hope will all fight for mental dominance over the speculator.

My satisfaction always came from beating the market, solving the puzzle. The money was the

reward, but it was not the main reason I loved the market. The stock market is the greatest, most

complex puzzle ever invented and it pays the biggest jackpot.  It was never the money that drove

me.  It was the game, solving the puzzle, beating the market that had confused and confounded the

greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a

game that was a living dynamic riddle, a conundrum to everyone who speculated on Wall Street.

Always remember; you can win a horse race, but you cant beat the races. You can win on a stock,

but you cannot beat Wall Street all the time. Nobody can.

I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a

profit and I sold it out. Of all the speculative blunders there are few greater than trying to

average a losing game. Always sell what shows you a loss and keep what shows you a

profit.

If all I have is ten dollars and I risk it, I am much braver than when I risk a million if I have another

million salted away.

Ive got friends, of course, but my business has always been the same a one-man affair. That is

why I have always played a lone hand.

What beat me was not having brains enough to stick to my own game that is, to play the market

only when I was satisfied that precedents favored my play. There is the plain fool, who does

the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he

must trade all the time. No man can have adequate reasons for buying or selling stocks daily

or sufficient knowledge to make his play an intelligent play.

For one thing, the automatic closing out of your trade when the margin reached the exhaustion point

was the best kind of stop-loss order.

The game taught me the game. And it didn’t spare me rod while teaching.

If somebody had told me my method would not work I nevertheless would have tried it out to make

sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money.

And I am only right when I make money. That is speculating.

Early that fall I not only was cleaned out again but I was so sick of the game I could no longer beat

that I decided to leave New York and try something else some other place. I had been trading since

my fourteenth year. I had made my first thousand dollars when I was a kid at fifteen and my first ten

thousand before I was twenty one. I had made and lost a ten thousand stake more than once. In

New York I had made thousands and lost them. I got up to fifty thousand and two days later that

went. I had no other business and knew no other game. After several years I was back where I

began. No-worse, for I had acquired habits and a style of living that required money; though that

part didn’t bother me as much as being wrong so consistently.

Don’t misunderstand me. I never allowed pleasure to interfere with business. When I lost it was

always because I was wrong and not because I was suffering from dissipation or excesses. There

were never any shattered nerves or rum-shaken limbs to spoil my game. I couldn’t afford anything

that kept me from feeling physically and mentally fit. Even now I am usually in bed by ten. As a

young man I never kept late hours, because I could not do business properly on insufficient sleep.

For instance, I had been bullish from the very start of a bull market, and I had backed my opinion by

buying stocks. An advance followed, as I had clearly foreseen. So far, all very well. But what else

did I do? Why, I listened to the elder statesmen and curbed my youthful impetuousness. I made up

my mind to be wise carefully, conservatively. Everybody knew that the way to do that was to take

profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried

to do; for I often took profits and waited for a reaction that never came. And I saw my stock go

kitting up ten points more and I sitting there with my four-point profit safe in my conservative pocket.

They say you never go broke taking profits. No, you don’t. But neither do you grow rich

taking a four-point profit in a bull market.

I think it was a long step forward in my trading education when I realized at last that when old Mr.

Partridge kept on telling other customers, Well, you know this is a bull market! he really meant to

tell them that the big money was not in the individual fluctuations but in the main movements that

is, not in reading the tape but in sizing up the entire market and its trend.

The market does not beat them. They beat themselves, because though they have brains they

cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the

courage of his convictions but also the intelligence and patience to sit tight.

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the

fluctuations. In a bull market the game is to buy and hold until you believe the bull market is

near its end.

Remember that stocks are never too high for you to begin buying or too low to begin selling.

Suppose he buys his first hundred, and that promptly shows him a loss. Why should he go to work

and get more stock? He ought to see at once that he is in the wrong; at least temporarily.

The Union Pacific incident in Saratoga in the summer of 1906 made me more independent than

ever of tips and talk – that is, of the opinions, surmises and suspicions of other people,

however friendly or however able they might be personally. Events, not vanity, proved for me

that I could read the tape more accurately than most of the people about me. I also was better

equipped than the average customer of Harding Brothers in that I was utterly free from

speculative prejudices. The bear side doesn’t appeal any more than the bull side, or vice

versa. My one steadfast prejudice is against being wrong.

When I am long of stocks it is because my reading of conditions has made me bullish. But

you find many people, reputed to be intelligent, who are bullish because they have stocks. I

do not allow my possessions – or my prepossessions either to do any thinking for me. That

is why I repeat that I never argue with the tape.

Obviously the thing to do was to be bullish in a bull market and bearish in a bear market.

I came to learn that even when one is properly bearish at the very beginning of a bear market

it is not well to begin selling in bulk until there is no danger of the engine back-firing.

Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will

make any one of ten thousand brothers or cousins of the original. The Mistake family is so large

that there is always one of them around when you want to see what you can do in the fool-play line.

Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it

overnight. But being wrong not taking the loss that is what does the damage to the pocket book

and to the soul.

I cant sleep answered the nervous one.

Why not? asked the friend.

I am carrying so much cotton that I cant sleep thinking about. It is wearing me out. What can I do?

Sell down to the sleeping point, answered the friend.

He will risk half his fortune in the stock market with less reflection that he devotes to the selection of

a medium-priced automobile.

It sounds very easy to say that all you have to do is to watch the tape, establish your resistance

points and be ready to trade along the line of least resistance as soon as you have determined it.

But in actual practice a man has to guard against many things, and most of all against himself

that is, against human nature.

A speculator must concern himself with making money out of the market and not with

insisting that the tape must agree with him. Never argue with it or ask for reasons or

explanations.

He should accumulate his line on the way up. Let him buy one-fifth of his full line. If that does not

show him a profit he must not increase his holdings because he has obviously begun wrong; he is

wrong temporarily and there is no profit in being wrong at any time.

Fear keeps you from making as much money as you ought to.

The game does not change and neither does human nature.

After I paid off my debts in full I put a pretty fair amount in to annuities. I made up my mind I

wasn’t going to be strapped and uncomfortable and minus a stake ever again.

Among the hazards of speculation the happening of the unexpected I might even say of the

unacceptable ranks high.

I trade on my own information and follow my own methods.

He was utterly fearless but never reckless. He could, and did, turn on a twinkling if he found he

was wrong.

At the same time I realized that the best of all tipsters, the most persuasive of all salesmen, is the

tape.

The speculators deadly enemies are: Ignorance, greed, fear and hope. All the statue books in the

world and all the rule books on all the Exchanges of the earth cannot eliminate these from the

human animal.

On Pat Hearne – He made money in stocks, and that made people ask him for advice. He would

never give any. If they asked him point-blank for his opinion about the wisdom of their commitments

he used a favorite race-track maxim of his: You cant tell till you bet. He traded in our office. He

would buy one hundred shares of some active stock and when, or if, it went up 1 percent, he would

buy another hundred. On another points advance, another hundred shares; and so on. He used to

say that he wasn’t playing the game to make money for others and therefore would put in a stoploss

order one point below the price of his last purchase. When the price kept going up he simply

moved up his stop with it. On a 1 percent reaction he was stopped out. He declared he did not see

any sense in losing more than one point, whether it came out of his original margin or out of his

paper profits.

You know, a professional gambler is not looking for long shots, but for sure money. Of course, long

shots are fine when they come in. In the stock market Pat wasnt after tips or playing to catch

twenty-points-a-week advances, but sure money in sufficient quantity to provide him with a good

sense of living. Of all the thousands of outsiders I have run across in Wall Street, Pat Hearne was

the only one who saw in stock speculation merely a game of chance like faro or roulette, but

nevertheless had the sense to stick to a relatively sound betting method.

After Pat Hearnes death one of our customers who had always traded with Pat and used his system

made over a hundred thousand dollars in Luckawana. Then he switched over to some other stock

and because he had made a big stake he thought he need not stick to Pats way. When a reaction

came, instead of cutting his losses he let them run as though they were profits. Of course every

cent went. When he finally quit he owed us several thousand dollars.

And he was right. I sometimes think that speculation must be an unnatural sort of business,

because I find that the average speculator has arrayed against his own nature. The

weaknesses that all men are prone to are fatal to success in speculation usually those very

weaknesses that make him likable to his fellows or that he himself particularly guards against in

those other ventures of his where they are not nearly so dangerous as when he is trading in

commodities or stocks.

The public ought always to keep in mind the elementals of stock trading. When a stock is going up

no elaborate explanation is needed as to why it is going up. It takes continuous buying to make a

stock keep going up. As long as it does so, with only small and natural reactions from time to time,

it is a pretty safe proposition to trail with it.

But if after a long steady rise a stock turns and gradually begins to go down, with only occasionally

small rallies, it is obvious that the line of least resistance has changed from upward to downward.

Such being the case why should anyone ask for explanations? There are probably very good

reasons why it should go down.

After spending many years in Wall Street and after making and losing millions of dollars I

want to tell you this: It never was my thinking that made the big money for me. It always was

my sitting.

There is only one side of the market and it is not the bull side or the bear side, but the right side.

When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale. When

I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale

down, I buy on a scale up.

The price pattern reminds you that every movement of importance is but a repetition of similar price

movements, that just as soon as you can familiarize yourself with the actions of the past, you will be

able to anticipate and act correctly and profitably upon forthcoming movements.

The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be

told specifically which particular stock to buy or sell. He wants to get something for nothing. He does

not wish to work. He doesn’t even wish to have to think.

I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any

particular stock.   In a bear market all stocks go down and in a bull market they go up.

For years I had been the victim of an unfortunate combination of inexperience, youth and insufficient

capital.

A speculator must not be a student. He must be both a student and a speculator.

In a speculator such an attitude (wishful thinking) is fatal.

A man must study general conditions, to seize them so as to be able to anticipate probabilities.

The message of the tape is same. That will be perfectly plain to anyone who will take the trouble to

think. He will find if he asks himself questions and considers conditions, that the answers will supply

themselves directly.

The public is so often whipsawed that one marvels at their persistence in not learning their lesson

In a narrow market, when prices are not getting anywhere to speak of but move within a

narrow range, there is no sense in trying to anticipate what the next big movement is going

to be. The thing to do is to watch the market, read the tape to determine the limits of the getnowhere

prices, and make up your mind that you will not take an interest until the prices

breaks through the limit in either direction.

Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate

intelligently and get a smaller but much more probable profit?

It would not be so difficult to make money if a trader always stuck to his speculative guns.

It always pays a man to be right at the right time.

Professional traders have always had some system or other based upon their experience and

governed either by their attitude towards speculation or by their desires.

A man may beat a stock or a group at a certain time, but no man living can beat the stock

market!

It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to

the urgings of a magnetic personality when plausibly expressed by a brilliant mind.

A man must know himself thoroughly if he is going to make a good job out of trading in the

speculative markets.

Wall Street is always the same: only the pockets change.

When the market goes against you, you hope that every day will be the last day – and you

lose more than you should had you not listened to hope. And when the market goes your

way, you become fearful that the next day will take away your profit and you get out – too

soon. The successful trader has to fight these two deep-seated instincts.

Throughout all my years of investing I’ve found that the big money was never made in the

buying or the selling. The big money was made in the waiting.

Markets are never wrong, opinions are.

The game of speculation is the most uniformly fascinating game in the world. But it is not a

game for the stupid, the mentally lazy, the person of inferior emotional balance, or the getrich-

quick adventurer. They will die poor.

Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a

trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses.

Let this thought be written indelibly upon your mind.

Remember this: When you are doing nothing, those speculators who feel they must trade day in and

day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.

When a margin call reaches you, close your account. Never meet a margin call. You are on the

wrong side of a market. Why send good money after bad? Keep that good money for another

day.

Successful traders always follow the line of least resistance. Follow the trend. The trend is your

friend.

A prudent speculator never argues with the tape.

Few people succeed in the market because they have no patience. They have a strong desire to get

rich quickly.

I absolutely believe that price movement patterns are being repeated. They are recurring

patterns that appear over and over, with slight variations. This is because markets are driven

by humans — and human nature never changes.

When you make a trade, “you should have a clear target where to sell if the market moves

against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital.

Losses are twice as expensive to make up. I always established a stop before making a trade.”

I am fully aware that of the millions of people who speculate in the markets, few people spend full

time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job — perhaps

even more than a job. Perhaps it is a vocation, where many are called but few are singled out for

success.

The big money is made by the sittin’ and the waitin’ not the thinking. Wait until all the factors

are in your favor before making the trade.”

“I Trade Therefore I Eat”

Tuesday, August 10th, 2010 Your Mental Game by admin

Ever heard the phrase “I think therefore I am.”  I have a couple of new ones.  First one is “I eat therefore I am.”  Makes sense you have to eat to live right?  How about “I eat therefore I trade.”  This may not make sense immediately but is very important to us gonna be forex traders.

A couple of years ago I was inspired like so many other forex traders to give it 100%, take my shot to go from 9 to 5 slavery to trading glory and freedom as presented by so many of the great forex internet marketers and guru’s.

In two years I learned that you can’t buy your way into trading and you better have the means to eat while you trade therefore the expression “I eat therefore I trade.”

In fact it is exponentially harder to trade the money you ultimately need for your daily life (probably the definition of what is and isn’t considered true risk capital).  Therefore this article applies especially to those retail traders who are giving up their day jobs before they have proven themselves as bonafide profitable money making traders.

A better strategy is to keep in place what keeps food on the table and trade with what time is left.  I know that is hard for some of you die hard traders out there that should be in the 12 step program DTA (day traders anonymous – which I have founded J).

“Baby needs a new pair of shoes” can not literally mean if I don’t win this trade I can’t put shoes on my kids feet.  Most of the successful daytraders I’ve met have a cushion of money that can support them for some time and they use true risk capital to trade with emotional freedom.

A friend of mine and former floor broker on the CME said that some of the biggest players on the floor were guys that came from a “candy fortune” or owned a “diamond importing business” and they would take some of that candy money and trade the action on the floor.  If they lost it all they just came back a few months later with more candy or diamond money.  The worst cases were always the guys who put it all on the line and had no business to back them up when they blew the big trade.  He told me he could count on two hands how many times he lost 100k in one trade or day but it didn’t matter because he knew he had money coming in from his brokerage and he was one of the ones that never went broke.

One simple strategy I picked up from a pro trader is to subdivide the amount of money you have and trade in segments.  It’s kind of like shooting a gun with one bullet or five.  Regardless the size of the bullet or the account having a one off shot at hitting the target puts greater pressure than when you have a whole round of 6 to shoot with.  Knowing you only need to hit the target with one bullet to win you can shoot and trade with less pressure.  So accordingly if you subdivide your money and trade with 1/5 of your balance if gives you the emotional freedom to trade that account with appropriate risk knowing that if something goes wrong (you breakdown emotionally on  bad day and overtrade, break rules, etc.) you have 4 more shots at hitting you trading target with the money you have to trade with.

Regardless of whether you have a little account or a big one we hope that all of us get there before we run out of money.  The best way to do that I know is to keep those day jobs until you’ve proven 100% without a doubt with real money you have broken through and can work through the emotions of trading as a profession.  Besides there is nothing wrong with putting an extra year or two salary in the bank from your trading hobby job before you go pro.  Hopefully before you know it you will be going from “I eat therefore I trade” to “I trade therefore I eat.”

Inspiration from John Wooden

Saturday, June 5th, 2010 Your Mental Game by admin

Yesterday a very inspirational figure in American Sports History died. He was a champion, winner and an inspiration to many of the students who learned basketball from him. He did much more though then teach them basketball, he taught them how to be true winners in life.

I thought it would be worthwhile to share some of his motivational quotes. We forex traders are a spirited bunch and we are in a profession that takes skill and a strong desire to succeed. This is not a career where we can sit back and skate by, rather it takes discipline and hard work. I hope you enjoy the words of John Wooden.

Do not let what you cannot do interfere with what you can do.

Failure is not fatal, but failure to change might be.

It isn’t what you do, but how you do it.

Consider the rights of others before your own feelings, and the feelings of others before your own rights.

Don’t measure yourself by what you have accomplished, but by what you should have accomplished with your ability.

If you don’t have time to do it right, when will you have time to do it over?

It’s the little details that are vital. Little things make big things happen.

Success comes from knowing that you did your best to become the best that you are capable of becoming.

The worst thing about new books is that they keep us from reading the old ones.

If you’re not making mistakes, then you’re not doing anything. I’m positive that a doer makes mistakes.

Never mistake activity for achievement.

You can’t live a perfect day without doing something for someone who will never be able to repay you.

“Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”

The people who turn out best are those people who make the best out of the way things turn out.

It is amazing how much can be accomplished if no one cares who gets the credit.

Discipline yourself and others won’t need to.

Tell the truth. That way you don’t have to remember a story.

“Remember this your lifetime through:
Tomorrow there will be more to do.
And failure waits for all who stay
With some success made yesterday.
Tomorrow you must try once more,
And even harder than before.”

Talent is God given. Be humble. Fame is man-given. Be grateful. Conceit is self-given. Be careful.

TraderCisco

A little help from your friends…

Monday, May 31st, 2010 Your Mental Game by admin

OK lets have a little fun.  I’ve got two posts that I’m ready to write.  Notes taken, application ready to be given.

Here is where you come in.  I want you to tell me which one you would like to read first.  So please comment and let me know.

First up:   “Is Rube Goldberg your Forex Mentor?”

Second:  “Analysis of the Lighthouse Trade- Finding Success as a Forex Trader”

Please comment and let me know which post you would like to read and I will write that one first.  Let the commenting begin!

TraderCisco

Safe Landings (How to survive as a Forex Trader)

Sunday, May 16th, 2010 Your Mental Game by TraderCisco

There is an old adage that says “Any landing you can walk away from is a good one.” In aviation and for that matter in trading forex it is very true.

We can all picture the rookie pilot and his desire to succeed at flying. He studies hard and he gets to practice, practice, practice. He develops a preflight routine and gets it to the point that he never varies from it. He works through different scenarios, such as wind, rain, night time flying,landing, unique approaches, mechanical failures, the list goes on and on.

Yet, the day comes where all the practice and all of the study must now be put into use. Live flying and then his first solo flight.

What must happen for the pilot when at the controls with no one else to accept responsibility for his actions, no one else to ‘bail’ him out?  Can you imagine that he would prepare less, take additional risk, such as not doing his preflight routine, flying tired or maybe in a situation when the weather is poor or even bad?

It is laughable to even think that a pilot would take such risks. At that very moment his life depends on his executing a flawless take-off, flight, and landing.   And trading?  Is it really so different?  No trading forex or options is not a life and death experience, but our trading life very well could be in jeopardy if we fail to take the precautions needed to succeed.

How can we follow the example of the pilot? What steps can we implement to assure safe landings and return flights? Quite simply we need a forex system that is executable and repeatable.

Lets look at each avenue of a pilots routine and see if we can make application to our forex trading experience.

1. Preflight Routine: Any experienced successful professional trader will tell you that their trading day would never start without some type of pretrading preparation for the day.  They focus on the pairs or equities they trade, what factors will effect it’s movement.  They are aware of what announcements may play a roll in the risk of their trades. Have you developed a preflight routine? Are you implementing a predetermined, repeatable set of actions that set your day into proper motion?

2. Stormy Weather:  A skilled pilot knows his limitations.  Ego must be checked at the door or a pilot could be risking his life and those of others.  When weather is either in the forecast or comes up out of nowhere, a good pilot knows how to react.  Occasionally that means not leaving the ground, and if in the air how to avert the danger and land safely.  How do you respond when stormy weather hits your trading?  Are you willing to sit on the sidelines and wait out the danger in the market or are you risking your account by trading on days that you know the risk is too high to venture into the air?  What if you are in a trade and a spontaneous announcement hits, do you have your stop in place?  How do you deal with a trade that has gone wrong or a trade that you realize after entry that you are over leveraged?  We all make poor calls from time to time, and more then a few pilots have found themselves in the face of bad weather after takeoff.  Would the pilot who recognizes his limitations continue to fly straight into the storm?  No, nor should you if you see that a trade has gone bad, have a plan, an exit strategy to safely avert a disastrous outcome.

3. Safe Landings:  It goes without saying a perfect flight can be ruined by a bad landing.  In forex trading there are few things more disturbing then a executed trade that fails to provide the outcome we want.  What can go wrong?  Missed profits, stops too tight that take us out of a winning trade too early, risk levels too high.  What can we do?  It starts with a proper plan, a  pilot may approach a runway and realize his approach is contrary to the wind direction for a good landing,  so he adjusts and attempts the landing again.  What can we do to assure a safe landing?  Risk is a great place to start if our risk is at a proper level, then even if the trade fails, we are safe to fly again.  However if we are loose, and over-leveraged we could die as a trader. We need to also make sure that we keep a journal of our trades, this is NOT AN OPTION!!! For additional help with journaling see the article posted by Piptee “Journaling is for the Birds”

I truly believe that more great traders have been lost to poor planning and execution then anything the market can throw at you. How many traders were on the verge of becoming great, failed at one of the key areas and lost all their trading assets just a few days or weeks before putting it all together?  Remember a traders life can be long and fruitful or short and wasted.  Proper planing and a simple executable plan can assure your place as a trader for the ages. For a reminder on keeping it simple see “It’s Good to be the King”

Looking forward to hearing from you.  Please leave your comments below, or if you have a question email me at  Scott@EuodooTrading.com

TraderCisco

Lost Nails and Little Details

Wednesday, April 21st, 2010 Your Mental Game by TraderCisco

Forex trading has been great fun, a business that has taught me many things about myself and how to enforce discipline.  Trading forex is also about recognizing mistakes and how to make adjustments.  I’ve been trading price action for some time now and when it comes to the forex market a nursery rhyme has helped me keep on track with my day trading.

For want of a nail the shoe was lost. For want of a shoe the horse was lost. For want of a horse the rider was lost. For want of a rider the battle was lost. For want of a battle the kingdom was lost. And all for the want of a horseshoe nail.

Lost nails and little details…

Without question we have all seen the consequences of how a small event can have such a large effect on the outcome.

What really inspired me to write this was a forex trade that I took a loss on sometime ago. The lesson stuck with me, and tho I would most likely repeat the mistake, my hope is that the little rhyme will play over and over in my head so that I limit my mistakes when trading forex.

So what happened? Well I took for granted how important to have my stop where it should be.

Forex trading can be a brutal master but when we are confronted with its punishment, how will we respond? Not so long ago I found a beautiful long setup entry on the AudJpy, it was a long term swing trade with the only downside being that the resistance for the trade was right at 100 pips. I am comfortable with larger stops on a swing if the trade will provide the proper ratio of return, and so, I entered the trade and placed my stop 100 + pips away enough for the broker spread and resistance. However…..

I learned a long time ago that your forex trading stop should always include support or resistance, broker spread, and an undefined ‘fudge’ factor that allows for the little tests that come along the way. What occurred on this trade was I got a little chippy. Somehow someway, my mind told me, “hey, you are a long way on this stop already, 100+ pips is plenty, no need for the ‘fudge factor’ this trade will NEVER come all the way down here”.

Well…. as you can already expect. The pair went 3 pips past my stop, turned tail and ran like a scalded dog, well past my 1 to 1 ratio and closer to the 2 to 1 ratio I wanted.

Lost nails and little details….. How dare I get chippy with a stop, whether 10 pips or 100. Those little details took me from a payout of lets say for giggles of 4% to a loss of 2%. That is a 6% swing for 3 pips… Lost nails and little details….. When you continue to make mistakes like this, imagine the loss of your account, imagine how the little details can keep your account from turning into what you desire.

So what do we do, well we plan properly and accordingly and follow our rules regardless of the circumstances. When the little details are not allowed to fall to the wayside, we go from failed traders to successes, all because of one little nail.

TraderCisco

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Big Wins & Small Losses Trading Forex

Monday, March 29th, 2010 Your Mental Game by TraderCisco

This journey into forex trading amazes me everyday. It is the ultimate mental ‘road trip’ and I keep finding around each corner newly undiscovered gems that I can apply to my forex trading.  Trading forex is about making money, plain and simple and if you are not making money trading the forex currency market it is time to make some adjustments.

The title of this article says a lot of my latest discovery, a statement so obvious that it should not have come as a surprise but it hit me in the face, the way seeing a mountain range for the first time makes you stand in silence. I have been leaning heavily on a trusted adviser, and he has mentioned this to me over and over, and it took a long time for me to ‘get it’ but when I did it really was a huge change for me.

You see my first ‘mentor’ guru, was all about string trading. His entire goal was based upon trading 50 trades in a row without a loss before you went live. Yes that is a noble goal, but to me it is a lot like teaching a bear to ride a bike, great for entertainment, but it has no value in the real world. You see I don’t trade so that I can wave some flag that says I traded 50 in a row, I trade to make money. Period. I tried for a long time to work it out to achieve a long string of trades and I have hit a few impressive strings. I’ve been over 20 in a row I think three times now. However the message and goal are flawed, because what it is teaching you is to keep a string going at all costs, even if that means moving or removing your stop just so your string remains intact, and yes one of the trainers told me this very thing. “I took my stop off because I am trading a long string and hey it’s only 300 pips on a small account.”

“Keep your losses small and your wins big and you will make money.” This statement broke the Myth of String Trading for me. Now that was a change of thought for me. My prior “guru” said have a stop of 70 and go for 10 pips. Oh yeah you can get 10 pips, six times in a row but when the 7th trade fails you are down 10 pips and you have LOST MONEY. Now I’m being selective AND using a small stop. So now if I’m in a trade and I use a stop of 5 to 15 pips and it fails, OK I’m out a very small percentage because I keep my risk very small. However the winners end up being very nice because I allow them to run beyond just a 1 to 1 return.

Let me illustrate:

If you have a 60 pip stop and make 60 pips are you happy? That would be a 1 to 1 ratio and most I think would be pleased. At this ratio your success rate would need to exceed 50% to make any money. Now what if you traded that same trade with a 15 pip stop? That would be a 4 to 1 ratio. If your risk was 1% on each trade how much would you make? On the first trade 1% but on the second trade your profit is 4%. My success rate on winning trades now only needs to be a little better than 25% to make money. No my goal is not to be correct only 25% of the time. My intention is to never be incorrect, however, when I am I am not overly concerned. I have a plan and a loss does not derail that plan. It does help to see how you can change your trading by just some small adjustments. I overheard a trader who trades large lot counts make this comment  ”It’s nice to hear of people who make a lot of pips. I’m hear to make money.” Enough said. Sometimes I think we ask the wrong questions and when we do the wrong answers cloud what our real goal should be, making a living.

So what I am doing is allowing my winning trades to run, I’m not afraid of losses anymore. With proper stop management the winners overwhelm the losers and I am working toward profitable days, weeks, months, years.

Let me know what you think, I would love to hear your opinions, and if you are interested in my mentor let me know. I will tell you he is only interested in serious traders, not really set up for beginners. He is a professional trader with limited time as he trades London and does a little bit of training during the NY session. Just because you inquire, does not mean he will accept you as a student he has limited space and is not going to be used as an open book to just give up his set ups. He is there to help you refine your trading style not just copy his.

Thank you for reading and I look forward to you comments.

TraderCisco
scott@euodootrading.com
www.euodootrading.com

The Secret Trade

Thursday, March 25th, 2010 Your Mental Game by piptee

I am a big believer in “The Secret.” Have you seen the movie yet? If not I strongly suggest you watch it.  I watch it at least once a week to stay on track. The “Secret” is the Law of Attraction. Napoleon Hill wrote about it in Think and Grow Rich, another book that I try to read once a year during vacations.

I first saw something about “The Secret” on Oprah. I know, I know, but that day changed my life for sure. I was broke, had about $10 in the bank and had no clue where the next dollar was going to come from. I watched that movie and used the last bit of money I had to buy it. I watched it, took notes and applied the Law of Attraction that day. It was a Monday and I wanted to have $5k by Friday because I had to go to California Friday night. So every morning I applied the Law of Attraction, calling $5k to come to me and having total FAITH that I would get it. Thursday I got a call to do a job and Friday morning I picked up a check for $4800. It wasn’t $5k, but it was close enough.

That day changed my life and belief in how I can attract what I want. I did that exercise of attracting money into my life a few more times and stepped up my requirements. For a few months I was attraction $20-30k a week and working less and less, the other aspect of what I wanted for myself: more money and less work.

Not quite sure what I was attracting to myself when Barry called and said I was going to learn how to trade currency with him, but years later what I wanted, what I attracted to myself was to work less and make more money. So now I am a trader, a successful trader, and I’m humble about it 

So now that we have that out of the way, it’s time to talk about “The Secret Trade.” When you get into a trade do you HOPE it will pay out? Hope is a belief in a positive outcome related to events and circumstances in one’s life. You can sit there and hope all day long, but there will be a feeling or thought that something will go wrong, the trade will fail. Negative thoughts creep in when you hope, and a negative thought is twice as powerful as a positive thought.

So what happens when you have faith in the trade? Wikipedia’ says faith is a confident belief in a concept or thing. I like the bible’s definition better. Hebrews 11:1 says “ Faith is the assured expectation of things hoped for, the evident demonstration of realities though not yet beheld.” Did you notice how we need to have faith to go along with hope?

Are you seeing where I am going with this? I feel that you can “Attract” trades to you.  Patience and faith are so important when it comes to trading. When I get in a trade, I try to put myself in an emotional state of what it will FEEL like when I get paid out. I try to have total faith in the trade and don’t even think about it failing. If you doubt your abilities as a trader, your account will very quickly reveal it. Confidence, trust and faith are the ONLY emotions I think a trader should have and focus on while they are sitting at the desk trading.

The Secret: “Attract positives pips, and you will get them”

Books that have helped you as a Trader

Wednesday, February 24th, 2010 Your Mental Game by TraderCisco

Hello All,

I’m really looking for your participation this time. No winsome words or pithy sayings tonight. Rather I have a request.

In the comment section below tell EuodooTrading what books have influenced you and why? I can’t wait to see what you have to say.

All the Best,

TraderCisco